Safeway Inc. has agreed to be acquired by AB Acquisition LLC, parent of the Albertsons supermarket chain and an affiliate of Cerberus Capital Management LP, in a deal valued at more than $9 billion.

Safeway, Albertsons, merger, buyout, AB Acquisition, Cerberus Capital Management, New Albertsons Inc., Bob Miller, Robert Edwards, Lenard Tessler, supermarket, food and drug chain,

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Safeway, Albertsons agree to merge

March 6th, 2014

PLEASANTON, Calif. and BOISE, Idaho – Safeway Inc. has agreed to be acquired by AB Acquisition LLC, parent of the Albertsons supermarket chain and an affiliate of Cerberus Capital Management LP, in a deal valued at more than $9 billion.

The companies announced the blockbuster agreement, unanimously approved by Safeway's board, late Thursday.

AB Acquisition is the owner of Albertsons and New Albertsons Inc. and is controlled by a Cerberus-led investor group, which also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners LP and Schottenstein Stores Corp.

The deal will merge the two food and drug chains' rosters of supermarket banners, including Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw's, Star Market, Super Saver, United Supermarkets, Market Street and Amigos.

Combined, the company will have more than 2,400 stores, 27 distribution facilities and 20 manufacturing plants with over 250,000 employees. No store closures are expected as a result of the transaction, Safeway and Albertsons noted.

Plans call for Bob Miller, Albertsons' current chief executive officer, to become executive chairman. Robert Edwards, Safeway's current president and CEO, will serve as president and CEO of the merged company.

Safeway said last month that it was in talks concerning a possible sale of the company. Just days later, published reports said Cerberus was in advanced discussions regarding a buyout of Safeway, the nation's second-largest grocery chain behind Kroger Co.

"This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country. It also brings together two great organizations with talented management teams," Miller said in a statement. "Robert Edwards and his team have done an outstanding job in positioning Safeway's core business for success, by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value. Working together will enable us to create cost savings that translate into price reductions for our customers. Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before."

Albertsons and Safeway said the merger will enable them to implement operational best practices and offer customers an enhanced shopping experience and more competitive prices. Substantial cost savings from operational efficiencies will allow for investments that are expected to benefit customers, including price reductions as well as store remodels and refurbishments, the companies noted. In addition, they said, the more diverse retail network, distribution centers and manufacturing assets will enable a wider assortment of products, a more efficient distribution and supply chain, enhanced fresh and perishable offerings, as well as expanded private-label options.

"This merger is one of several actions we have taken in recent months as a result of our strategic business review," Edwards stated. "Safeway has been focused on better meeting shoppers' diverse needs through local, relevant assortment, an improved price/value proposition and a great shopping experience that has driven improved sales trends. We are excited about continuing this momentum as a combined organization. We look forward to working with Bob Miller and the rest of the Albertsons team as we proceed together on a path towards becoming an even stronger organization."

With the merger, Safeway shareholders are expected to receive total value estimated at $40 per share. Under the agreement, Safeway shareholders will receive $32.50 per share in cash and have the right to receive pro-rata distributions of net proceeds from primarily noncore assets with an estimated value of $3.65 per share. The proceeds are from the sale of the assets of real estate development subsidiary Property Development Centers LLC (PDC), comprised of its shopping center portfolio including certain related Safeway stores, and the monetization of its 49% equity interest in Mexico-based food and general merchandise retailer Casa Ley S.A. de C.V.

Safeway said the deal doesn't change its plan to distribute the remaining 37.8 million shares it owns of Blackhawk Network Holdings (representing about 72.2% of the outstanding Blackhawk shares) to Safeway stockholders in mid-April, and prior to the completion of the merger.

The combined value for Safeway shareholders who receive both a distribution of Blackhawk shares and the aggregate cash and contingent consideration in the Merger, based on Safeway's current estimates of the value of the contingent consideration, would represent a premium of 72% over Safeway's closing share price of $23.27 on March 6, 2013, one year ago; 56% over Safeway's closing price of $25.62 on Sept. 6, 2013, six months ago; and 17% over Safeway's closing share price of $34.10 on Feb.18, 2014, the day before Safeway announced it was in talks regarding a possible sale of the company.

"Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience," commented Lenard Tessler, co-head of global private equity and senior managing director at Cerberus. "Similarly, Safeway has consistently provided outstanding value and customer service throughout the communities it serves. Combining these strong management teams will strengthen the ability of Safeway and Albertsons to deliver on a shared commitment to offering customers higher quality products at lower prices, which will undoubtedly yield positive results for all stakeholders in the business."

The merger deal is expected to close in the fourth quarter of 2014 pending customary closing conditions, including approvals from Safeway shareholders and regulators. The companies said that under certain circumstances, if the merger fails to close, AB Acquisition would be required to pay Safeway $400 million.

In addition, the agreement includes a "go-shop" period, in which Safeway, with the assistance of financial adviser Goldman Sachs, will solicit, receive, evaluate and potentially enter into talks with parties that offer alternative proposals. The initial go-shop period is 21 days. For a 15-day period following the termination of the go-shop period, Safeway will be permitted to continue discussions and enter into or recommend a transaction with any person that submitted a qualifying proposal during the 21-day period.

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